Q1 2024 Goodfood Market Corp Earnings Call
Good morning, and welcome to the good food Q1, FY 'twenty 'twenty four earnings conference call and webcast. At this time all participants are in listen only mode. Following the presentation. We will conduct a question and answer session is courtesy to others, we ask that each pause.
So as to limit themselves to one question and one follow up instructions.
Instructions will be felt at that time feeds queue up for questions. Please note the questions will be taken from financial analyst on me.
Anyone has any difficulties hearing the conference. Please press star followed by zero to off price assistance at any time I would like to remind everyone that this conference call is being recorded today January 16th that's H a M eastern time.
I would like to remind you that today's presentation may contain forward looking statements.
It's about good foods current and future plans expectations and intentions results levels of activity performance goals or treatments or other future events or developments as such please take a moment to read the disclaimer on forward looking statements on slide two of the presentation. Please be aware that you are in the coal the coal presents.
Ooh fits us metrics and non ifr S measures where possible. These measures are identified and reconciled to the most comparable <unk> RF matches in a M D N a.
Speaker Change: Finally, let me remind you that all figures expressed on today's call are in Canadian dollars, unless otherwise stated I would now like to turn the meeting I thought she will host for today's call Jonathan Ferrari cause food Chief Executive Officer. Mr. Ferrari You May proceed.
Jonathan Ferrari: Thank you.
Jonathan Ferrari: But youre right to say that you had at any cost at all so there must be a good food okay. That's.
Jonathan Ferrari: That's enough seeds planted CNET did exactly as didn't invent that clearly do disarm didnt advance as well.
Speaker Change: Good morning, everyone and welcome to this call for good food market Corp to present, our financial results for the first quarter of fiscal 2020 score ended December 2nd 2024.
Speaker Change: I'm joined on the call today by New York, Peggy Good Foods', President and Chief operating Officer, and Ross, Our Chief Financial Officer.
Speaker Change: Our press release reporting this quarters results was published earlier this morning.
Speaker Change: It can be found on our website and on SEDAR.
Speaker Change: I will now turn to slide three to review the highlights of this quarter.
Speaker Change: To start fiscal 2024 marks our 10th anniversary as a company.
Speaker Change: Throughout the year, we will be celebrating this great milestone by delighting, our customers and employees with great surprises and continuing to change how Canadians.
Our first quarter has kicked off this anniversary year.
With great momentum.
Speaker Change: Our team built the product process and efficiency that have helped deliver growing profitability and cash flows along with answering our customers call for diversity and ease of use.
Speaker Change: We're pleased to report a fourth consecutive quarter of positive EBITDA.
Speaker Change: In the first quarter, our adjusted EBITDA reached one $5 million for a margin of three 6% representing an eight five percentage point year over year margin growth.
Speaker Change: With gross margin maintained at the high 30% level and G&A, having been reduced a further $5 million annually compared to Q1 last year. This consistent performance demonstrates our commitment to generate growing profitability and cash flows.
Speaker Change: This is evidenced by our LTM adjusted EBITDA now standing at $8 $5 million compared to an LTM adjusted EBITDA loss of $28 $5 million the same period last year.
Speaker Change: We have also had strong cash flow generation this quarter with cash flows from operating activities hitting $3 $8 million and adjusted free cash flows reaching $4 million.
Speaker Change: We are pleased with our financial performance this quarter and we are equally pleased with the new delicious meals and improved intuitive user experience. Our teams have worked very hard to deliver.
With our profitability consistently growing we firmly believe that relentlessly enhancing customer value will drive substantial topline growth.
Speaker Change: Matt.
Speaker Change: With our current cost structure will in turn generate operating leverage and growing cash flows.
Speaker Change: To enhance our customer value proposition we.
Speaker Change: We expanded our recipe customization options to provide the ability to swap or double our delicious high quality proteins.
Speaker Change: We also launched smart bundles to provide mouthwatering options for various meal locations like what our members are hosting friends are cooking branch on a Sunday on a Sunny Sunday morning.
Speaker Change: Yeah.
Speaker Change: I'm a digital experience perspective, we had made our customer experience more intuitive, but adding recipe tags.
Speaker Change: As already in 15 minutes family friendly or carb wise to make recipe selection smoother.
Speaker Change: And created simple categories to provide better browsing within our growing selection of meals.
Speaker Change: We're making weekly meal planning in minutes, even more simple and delicious.
Speaker Change: Overall, we remain disciplined and keep our focus on profitable growth, which puts us in a strong position to enhance our customers' value proposition every day.
Speaker Change: And to continue delivering growing cash flows and look forward to accelerating that growth and profitability.
Speaker Change: That note.
Speaker Change: Russell will now go over our financial performance in greater detail.
Russell: Thank you John and good morning, everyone.
Russell: I will now turn to slide four which provides details on our topline performance.
Quarterly active customers during the fourth quarter, where during the first quarter were 124000 compared to 148.
Russell: In the same quarter of fiscal 2000 and to me.
Russell: 16000 in the previous quarter Q4 of fiscal 'twenty.
Russell: The sequential quarterly growth stems from the usually more I came back to school period.
Russell: That said, we are particularly pleased with the resurgence in quarterly active customer growth not only growing compared to the seasonal fourth quarter, but also growing against the more comparable third quarter of last year and reaching the same level as the second quarter of fiscal 'twenty three.
Russell: Increase in customer activity was also driven by successful reengagement campaigns that have driven broader a broader set of customers to place orders.
Net sales were $45 million for the quarter of $3 $3 million sequential increase compared to the fourth quarter.
Russell: Longer order rates and larger basket containing more recipes. It out were the main driver of the net sales growth.
Russell: Increased level of activity resulted in net sales practice customers increasing to $326 this quarter, continuing its upward growth trajectory.
Russell: We will now turn to slide five to.
Russell: So if you're a profitability level.
Russell: We are pleased to now have delivered four consecutive quarters of positive adjusted EBITDA on the back of continuous improvement in gross margin, which reached 39% in the first quarter 380 basis point improvement compared to the same quarter last year, we achieved $1.5 million of adjusted EBITDA. This quarter for a margin of nearly four.
Russell: Per cent and eight 5% improvement year over year.
Russell: It's consistent and growing level of profitability is underpinned by efforts made in execution by our teams to enhance the efficiency of our operation and create a lean and mean cost structure.
Russell: And bandwidth pricing optimization and a focus on our most profitable products and customers. These structural improvements have driven an LTM adjusted EBITDA of eight and a half million dollars.
Russell: For a margin of 5%.
Russell: We now clearly have a solid platform to sustain growing profitability.
Russell: I will now move to slide.
Russell: A review of cash flow and capital expenditure.
Russell: Cash flows generated by operating activities were strong $3 $8 million this quarter at $10 million improvement compared to the same quarter last year.
Russell: Reversal from negative CFO in the fourth quarter to positive this quarter is driven by the increase in profitability and also by the nature of our working capital as we obtain hoisting stemming from the lower volume fourth quarter and the higher volume first quarter.
Russell: A portion of this improvement is being could you any timing of invoices and other payables as well.
Russell: Still a substantial improvement compared to last year demonstrates the impact of our improved profitability and it is directly having an impact on our cash flows.
Russell: Capital expenditures came in again at less than a quarter million dollars.
Russell: Relating mainly to capital a neighbor of taking Bethany and payment of minor maintenance work.
Russell: This continues our consistent reduction of capital intensity.
Russell: Adjusted free cash flow, which combined CFO and capex spend to evaluate our ability to generate.
Russell: Cash in normal operating circumstances was $4 million and $9 million improvement compared to last year.
Russell: Its performance has been the result of the growing profitability as well as lower capital investment and further highlights our disciplined approach to cost management and capital allocation and our commitment to delivering delivering long term shareholder value through substantial free cash flow generation.
Turning to slide seven you will find the summary of our performance this quarter.
Russell: We are pleased with our financial performance this quarter pleased but not content our profitability overall.
Russell: And overall financial Kpis continue to show sustained improvement and we're especially proud of our cash flow generation.
Russell: Positive free cash flow, we have generated in two of the past three quarters brings us to an inflection point on our cash levels as well.
Russell: Have evolved from operating with limited ability to allocate capital to generating cash and paying down debt as we did this quarter by reducing our term loan for it.
Russell: Overall, we are energized with the consistently strong results that have driven strong profitability.
And cash flow metrics quarter after quarter.
Russell: The building indicators continued to display material improvements and consistent strength year over year, demonstrating our unwavering commitment to profitability and cash flow.
Speaker Change: John will now provide an update on our outlook.
John: Thank you Ross.
John: Switching to slide eight.
John: We shared in recent quarters, the feedback that is informing our roadmap and execution.
John: To enhance our customer value proposition every day.
John: This feedback has been instrumental in creating a stickier and more engaged fan base as well as helping to carefully grow our addressable markets both within our direct to consumer meal kit market and within adjacent categories to increasingly serve the needs of new customer segments.
John: Overall.
John: Home cooking remains the most popular way Canadian eat dinner.
John: In the current challenging economic climate with the potential for a recession and discretion discretionary income spending correction home cooking is becoming even stickier.
John: Our customers families and busy professionals are increasingly focused on preparing and eating healthy nutritious and tasty meals at home with high quality ingredients that can be prepared quickly.
John: Armed with that feedback we continue to broaden our assortment of healthy recipes that provide low carb auctions and with the expanded customization options. We launched we have given our customers the option to choose different proteins for various recipes or even customize the size of the protein they can order.
John: We also continue to partner with key brand ambassadors to align our customers' wants and values with our meals and brands.
John: After a successful partnership with Montreal Canadiens Captain mixing Zaki, we have also partnered with Sarah nurse Pearl Hockey Olympic medalist with more exciting partnerships to come.
John: In addition to answering our members call for more health focused options. We've also taken in stride customers desire for experiences that sparked joy, while offering an alternative to pricey restaurants and takeout options.
John: For example.
John: We have introduced a rotation.
This value meal at $10 99 per serving.
John: Buying our leading culinary creativity with our farm fresh ingredients and unique sourcing ability to provide a delicious meal experience added even more attractive price.
John: We also started selling for serving family style recipes on our two serving plans, which can be used for entertaining our weekly meal planning and provide great value to our customers.
John: These family style recipes are a great way for us to continue increasing our average basket size.
John: As Canadians increasingly eat at home to save money, we're continuing to find new ways to spark.
John: Joey cooking at home building on the momentum of our curated unique partnerships with some of the best restaurants in Canada, bringing local flavors from Aloe and Toronto and Saint Laurent in Vancouver.
John: With more exciting collaborations in the pipeline.
John: Sure to delight our fans.
John: Finally, Canadians are prioritizing climate friendly options whenever possible.
John: Our members have long enjoyed the perfectly portion of ingredients.
John: Nearly eliminate food waste.
John: And our farm to table supply chain that removes intermediaries and additional costs for meal planning.
John: After building on that by offsetting carbon emissions.
Good food deliveries and by introducing packaging innovation.
John: That has helped us to remove the equivalent of $2 4 million plastic bags annually from our deliveries we have many additional initiatives in the pipeline that will further highlight our ESG efforts across many areas of good food.
John: We have already started seeing results from the initiatives, we mentioned today and in previous quarters.
John: For example, our customers are ordering bigger baskets containing more portions of our delicious recipes with basket sizes, increasing double digit percentage points year over year further supported by our customers order rate also displaying significant increases.
John: Overall, we're lean mean and consistently growing our profitability.
John: We're also remaining focused on consistently growing our customer value proposition and.
John: And with continued SG&A and operational discipline, we are in a strong position to continue growing our free cash flow at an attractive pace in fiscal 2024 and beyond.
Speaker Change: On that note I will turn it over to the operator for the Q&A portion of this call.
Speaker Change: Thank you if you wish to ask a question. Please style star one on your telephone keypad snouts entered the queue. Once your names and out. So you can ask you. A question. If you find your question is I'll answer before it shows Sun speak you can dawn will start soon to counsel.
Speaker Change: As a reminder, this is for analysts and Lee and please limit yourself to one question and one follow up.
Speaker Change: And our first question comes from the line of Martin Landry of Stifel. Please go ahead. Your line is open.
Martin Landry: Hi, good morning, guys.
Martin Landry: Okay.
Martin Landry: My first question is on is on your gross margin and you know what.
Martin Landry: We're seeing your credits incentives.
Martin Landry: Going up significantly on a year over year basis.
Martin Landry: But yet your gross margin has also expanded nicely.
Speaker Change: So I was wondering.
Speaker Change: If you can bridge.
Speaker Change: You know your gross margin on a year over year basis, so that when you have a better idea.
Speaker Change: Of the buckets that are driving the improvement.
Speaker Change: Yeah good morning.
Good question I think if you look at the components of what flows through gross margin. Obviously, you have the credits and incentives and net sales that are the main components from a dollar perspective that flow through.
Speaker Change: Incentives have gone up as you noted.
Speaker Change: The that was offset by a few can put into an integration. The first component is its price adjustments I think we are.
We were a little bit late last year and adjusting their prices to the inflationary environment. So now with the price suggests me that enables us to give.
Speaker Change: Give the discount that we engage customers and to keep customers ordering on the platform as well as attracting anyone.
Speaker Change: Second component.
Would it be on the labor side, where.
Speaker Change: Our cost per port shading production labor cost proportion.
So a significantly.
Speaker Change: The third component is on the food cost side, where we're seeing.
Speaker Change: Better food cost environment, we've also simplified the operation to.
Letting medians overall excuse overall.
Speaker Change: To put it.
Speaker Change: Together.
Speaker Change: And that has also reduced waste significantly also coming out of on demand that had a significant higher we can put into it.
Speaker Change: Okay. That's helpful can you quantify that for us.
Speaker Change: Russ.
Speaker Change:
Russ: Any specific percentage numbers.
Russ: Or is that maybe a little right yeah.
Russ: What I can tell you is the the majority of the improvement.
Russ: Client about half comes from the pricing adjustment.
Russ: About 30% comes from the labor efficiencies and food and other small improvements that just decided right.
Speaker Change: Okay. Okay. Thank you and then maybe the follow up to that.
Speaker Change: Maybe I.
Speaker Change: I don't know if you have the numbers handy, but.
Speaker Change: You know I'm trying to.
Speaker Change: See what what's the average price of a serving right now you've got plenty of different options, but on average you.
Speaker Change: You know, what's what's the price of your serving.
Speaker Change: And how does that compare to pre COVID-19 levels and just to.
Speaker Change: Give us an idea of how much pricing has been taken over the last couple of years.
And then and then where are you positioned there.
Speaker Change: As your competitors.
Speaker Change: To understand that a little bit you know.
Speaker Change: What's your what's your approach.
Speaker Change: Yeah, Hey, Matt Thanks, Neal Thanks for the question.
Speaker Change: So current pricing, we tried to kind of segment the customer base as John Ross was saying in the opening remarks from a $10 price point or just below $10 price point that you can get today on some of the larger baskets.
Speaker Change: Up to them.
Speaker Change: I'm kind of debt.
Speaker Change: We can date night type of a price point of around $30 for some of the artisan meals. So we have everything in between.
Speaker Change: Lowest plans.
Speaker Change: Our starting in and around that $10 price point and then subscription.
Speaker Change: Subscription plans go up it's about 18 Bucks and then people will kind of mix and match about that so we think we've.
Speaker Change: Covered a pretty broad base of Canadians that are looking to eat healthy delicious meals at home through.
Speaker Change: Through the service.
Speaker Change: How that compares to a pre COVID-19.
Speaker Change: We've had lots of inflation and price adjustments over the past call. It 36 months so.
Speaker Change: So, it's probably up around 15% to 20% depending on the price point.
Speaker Change: And continuing to kind of pass along some of the cost increases.
Speaker Change: And and take some of the efficiencies as we were talking about into our into our margin, which allowed us to deliver the eight.
Speaker Change: Eight and a half million of LTM EBITDA.
Speaker Change: Going forward, we have some interesting.
Speaker Change: Pricing adjustments that we can we can look at and try to deliver more value to customers through our.
Speaker Change: Through.
Playing with food costs, playing with Upsells offering.
Speaker Change: Incentives too to purchase larger baskets. So the team has been working tirelessly on some some really interesting things that we think will help.
Speaker Change: Engagement and and L. P. So hopefully that gives you a good sense of Iraq.
Speaker Change: Yes, it may be very helpful.
Speaker Change: From a positioning perspective, I think were in line with sort.
Speaker Change: Sort of the broader competitor and if you think of the Hello, fresh and <unk>.
Speaker Change: And locally here in the court case, I think there's obviously a lower cost.
Speaker Change: More value focused.
Speaker Change: We'll get better at a lower price point, but broadly where we are in line with sort of a similar or even slightly lower level of quality.
Speaker Change: You'll get the victims.
Speaker Change: Okay.
Speaker Change: Okay. Okay. That's helpful. Thank you.
Speaker Change: Thank you and our next question comes from the line of Frederic Tremblay Oh Fischer. Please go ahead. Your line is open.
Thanks, Good morning.
Frederic Tremblay: As you embark on this just go journey I'm curious to hear a bit more about the latest cohort of new customers that you added in Q1.
Frederic Tremblay: So the near term economy.
Frederic Tremblay: Active customers can you share a bit of color on kind of.
Frederic Tremblay: The near term profitability profile retention order frequency and basket size of these new customers I know, it's early but just any detail them.
Frederic Tremblay: On those factors would be helpful.
Frederic Tremblay: Yeah.
Speaker Change: Yes, good morning, Fred and question makes sense I think if you as you say it's been broken this growth journey the economic.
Speaker Change: I always have been but obviously, even more important you know drive decision we make on customers.
Speaker Change: So if you if you generally think of how we've structured our acquisition I think the driver is how quickly we can pay back the customer acquisition costs.
Speaker Change: So that drives the decision into a a.
Speaker Change: Look in that cost of acquisition be into how.
Speaker Change: Quickly can you get enough orders in a basket to pay that back. So the first piece from a customer acquisition perspective I think.
Speaker Change: We've mentioned it in and done some really good work there to drive it down from probably 50% to where it was in high sometime last year.
So we need more manageable acquisition costs that that automatically links the economics I think for me.
Speaker Change: Lifetime value and an order rate perspective, we've changed quite a bit how we incentivize customers the incentive used to be very focused on the per spots to get people to come in and tried to concept I think the concept is a little bit better known now so it's really to see how it fits within our customer's lifestyle. So that the incentives are spread over multiple.
Speaker Change: Simple boxes, which dragged down the incentive per box switching increases its net gross margin and its profitability.
Speaker Change: So would that enables as well attracting customers that really want to see if if the meal planning tool is helpful within their lifestyle rather than customers that are looking for a pre bought and then you'll have a little less.
Speaker Change: The reason to stick around after.
Speaker Change: So I think it is.
Speaker Change: Bang the orders, we're seeing from customers that are ordering multiple time.
Speaker Change: And what it does is it automatically increases their lifetime value and help their payback.
Speaker Change: I think from a basket size new customers come in at a.
Speaker Change: Roughly the expected average basket sizes, I mean, it's a classic meal planning enormous popularity and that's where the chunk of the biggest chunk of our basket size is.
Speaker Change: So it did.
Speaker Change: Well north of a one.
Speaker Change: $100.
Speaker Change: On a gross side and then from an order rate perspective.
Speaker Change: I think they displace them some definitely some better economics than what we were seeing last year in your into your previous.
Speaker Change: From a retention perspective, and an order rate perspective.
So we are we are seeing basically.
Speaker Change: These economics, trickling down faster payback being closer to our target of around or trying to uptick but.
Speaker Change: And that's what really has underpinned the profitability on an EBITDA basis.
Speaker Change: King investments have kept quite sustainable, but just to be a lot more efficiency.
Speaker Change: Great. That's helpful and maybe just a follow up on the customer acquisition cost.
Speaker Change: There anything structural I guess any any decline in the customer acquisition cost or <unk>.
Speaker Change: Is it for lack of a better word something temporary.
Speaker Change: Driving that working to better understand that.
Speaker Change: Sustainable or if it's a matter of.
Speaker Change: You guys may be picking up some of the lagging crude initially like just trying to better understand that.
Speaker Change: The dynamics there.
Speaker Change: What are the key things we've been working on.
Speaker Change: On the customer acquisition side is actually directly on our digital experience directly on the.
Speaker Change: The website and the App, we've been working over the past few quarters on removing friction in.
Speaker Change: In the sign up flow.
Speaker Change: Enabling customers to <unk>.
Speaker Change: Refer friends more easily within our digital experiences which of course the.
Speaker Change: Customer acquisition costs of a referral is much lower than.
Speaker Change: Our brand new cut.
Speaker Change: Customer.
Speaker Change: And then the last piece is is continuing to focus on reengagement. So that's another.
Low customer or sorry, a reactivation of canceled customers.
Speaker Change: Another.
Speaker Change: Low cost customer.
Speaker Change: Customer acquisition cost pool, so we have our database of customers going back to 2014, and what we're seeing is that.
Speaker Change: That customers are as part of their lifecycle right. They go in and out of.
Speaker Change: Subscribing to our weekly meal kits service.
Speaker Change: And if we can provide a great experience while they are a customer a great off boarding experience when they decided to pause or cancel their subscription.
Speaker Change: Propensity of customers to actually come back in and become re activated customers is growing and so when we think about our overall customer pool, yes, we think about our our active customers that have an active subscription but to us our customer base includes the active customers and the cancel.
Customers and we're continuously thinking about ways to reengage them.
Speaker Change: And the restaurant partnerships that we were talking about have actually served as a great tool to to reactivate customers. So exciting partnerships like that have worked quite well.
Speaker Change: Our thinking is if we can continue to position.
Speaker Change: Our service has a great value versus restaurants right at the.
It's a restaurant quality meal.
Speaker Change: A table supply chain.
Speaker Change: And for as little as $10 of serving our customers are able to prepare really delicious meals at home take care of the meal planning and have.
Speaker Change: You have flavors that can suit the whole family.
Speaker Change: Customers are seeing value in our in that offering theres certainly some macroeconomic headwinds that we.
Speaker Change: We talked a little bit about in the script threat.
Speaker Change: The focus of customers on maximizing the value that they're getting.
It's certainly something real that we're that we're dealing with.
Speaker Change: But I think we're we're doing a good job here in terms of positioning our offering as a as a replacement too expensive.
Speaker Change: Restaurant options take out options, our customers are thinking about the cost of good food versus Uber eats or a skip the dishes delivery for example, and so.
Speaker Change: In that context, I think they're they're seeing pretty good value.
Speaker Change: Yeah.
Speaker Change: That's great. Thanks for that and my last question is we noticed a decent share of the cash flow in the quarter was used for debt repayment, but can you add can you talk about your expectations for cash flow generation and your thoughts on future debt repayments or other potential capital allocation decision.
Speaker Change: Yes.
Speaker Change: Good question I think we're we're obviously looking to generate.
Speaker Change: Our cash flows.
Speaker Change: Cash flows I think there's some some timing toward working capital that sometimes goes.
Speaker Change: Sometimes on the other side.
Speaker Change: If you look at the.
Speaker Change: Near future, we have a credit facility.
Speaker Change: Is it that gets a little bit more cash in and that we could look to.
Speaker Change: Either use or or repay depending on where interest rates are.
Speaker Change: And I think what it gives us the most is that ability to have some capital allocation decisions that they will.
Speaker Change: If we're seeing these kinds of returns in our marketing.
Speaker Change: And if we can get this kind of a return from from some small investments within the facility.
What then drags in the near term cash flow and you try and medium term cash flow generation.
Speaker Change: We we definitely have the.
Speaker Change: Have a nice decision to make there and we're cognizant of our capital structure and looking to build.
Speaker Change: The cash flow generation to be able to continue to sustain it.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thank you and as there are currently no further questions on the line at this time I'll hand, the floor back to Mr. Ferrari for the closing comments.
Okay.
Jonathan Ferrari: Thanks, very much for joining us on this call.
Jonathan Ferrari: We look forward to speaking with you again at our next call.
Speaker Change: Thank you. This now concludes the conference. Thank you very much for attending you may now disconnect your lines.